The danger of discounting

Price pressure is a common reality of doing business and setting prices can drive an entrepreneur crazy.

Not to mention the consternation faced by owners and managers everywhere, being asked to sign off on discounted deals by sales reps and customers alike.

Price will be one of several buying motives for most people. If you are not competing in the price basement market, but price is the only motive you are responding to, then price will be all people will judge you by.

Maintain your price by adding value in other ways

It’s important you understand the danger of discounting and it is perhaps timely to remind ourselves to resist the temptation to discount as our only tactic to win business.

While reducing price to get the sale might help grow the revenue, it has a significant impact on the bottom line profit.

Did you realize that if you normally sell a product for $100, and make $40 profit, then if you discount by 10%, you will have to sell 1/3 more product to make the same amount of profit that you did before you started discounting?

Here’s an example

Gross Margin = the % of sale price left after deducting costs
Gross Profit = Total sales less direct costs